The real estate industry in the United Arab Emirates is facing a tough time as recent developments in the oil and gas sector have caused the prices of properties to plummet.
The UAE has one of the most diversified economies among its Middle Eastern counterparts. It also ranks second globally with its vast reserves of crude oil, natural gas, and other petroleum products. However, it is now seeing an increasing number of developers going into bankruptcy or are suspending their projects due to the slump in oil prices.
The real estate market in Abu Dhabi had been showing signs of slowing down prior to December 2014 following a series of government initiatives that imposed restrictions on mortgages and housing loans.
The National newspaper reports that more than 3,000 real estate companies have had to shut down after the government implemented new laws and the policies on loan repayment and interest rates.
The stricter rules followed a spate of defaults by developers in Dubai and other emirates, which caused property prices to slide. Prices across the UAE fell 1.49 percent in 2014 while property transactions went down 20 percent overall since 2008, according to the National Bank of Abu Dhabi.
The decline in oil prices has led the UAE, along with other GCC states to look for ways to diversify their economies. As of 2014, its economy was based mostly on exports and imports of natural gas and petroleum products, which make up 85 percent of total exports. The high-tech sector only accounts for 3 percent of total exports.
The World Economic Forum (WEF) has ranked the UAE as number one among 144 countries in the 2015-2016 Global Competitiveness Index, which measures factors such as employment levels, secondary education enrollment rates, and innovation potential of its workforce.
It is also listed first among 14 other Arab countries on WEF’s 2016-2017 Global Competitiveness Report.
The UAE has also seen an increase in its non-oil government revenues, which have nearly doubled since 2013, according to The National. It reports that the country generated $79 billion in 2014 compared with $39 billion during the fiscal year 2011-2012. Abu Dhabi, the wealthiest emirate among the seven, plans to invest more than $1 billion from its coffers in the Silicon Valley of the US.
It is now seeking ways to diversify its economy by using a strategy that involves investing in the United States, Europe, and Asia. It has created a new national company called Mubadala Investment Company, which aims to expand into growth markets outside the UAE.
In fact, it just announced a new US$5.8 billion investment fund that will focus on infrastructure and advanced technologies in the US. In Asia, its Abu Dhabi Future Energy Company is set to invest $3 billion in renewable energy projects by 2020.
The UAE has not been completely spared from the oil market’s slump as Abu Dhabi’s Investment Corp. has seen the value of its assets falling by $40 billion in 2014 over falling oil prices.
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